New inflation index to impact DA, 30 mn govt staff to get more pay

Topics CPI | Inflation | CPI Inflation

The move will lead to a hike in salaries of around 30 million industrial workers and 4.8 million central government employees
The Union government is set to change the base year for the consumer price index for industrial workers (CPI-IW), paving the way for a possible hike in minimum wage of private sector workers and dearness allowance (DA) of government employees.


Union Labour and Employment Minister Santosh Kumar Gangwar is scheduled to release the new CPI-IW index, keeping 2016 as the base year, on October 21, a top labour ministry official said. The new index will be released for September 2020.


The CPI-IW hasn’t been revised since 2001 — an exercise that should usually take place every five years. “The government will also announce that it will revise the CPI-IW base year again in 2021 and the work on it will begin next year,” the official said, requesting anonymity.


The move may lead to a hike in salaries of around 30 million industrial workers and 4.8 million central government employees. This is because the DA – a component of salary that undergoes revision every six months to keep pace with the inflation rate in the economy — is linked to this inflation index for government employees. The Seventh Pay Commission had decided to choose the CPI-IW as the index for adjusting inflation for central government employees.


However, the hike in salary for government officials may take some time as the Centre had earlier this year decided to put a freeze on any hike in the DA of its employees till July, 2021, owing to the Covid-19 pandemic.

For private sector workers, the Centre and most states increase the variable DA component of the minimum wages twice a year based on the CPI-IW inflation numbers.


The CPI-IW, with the base year 2016, will give more weight to non-food items than the food ones compared to the 2001 index. The weight for food and beverages components is set to decline from 46 per cent to 39 per cent in the new series.


On the other hand, the weight for non-food items such as education, health, entertainment and recreation, household goods, and services, transport and communication is slated to jump from 23 per cent in 2001 to 30 per cent in 2016.


As the prices of non-food items rise at higher rate than food items, the DA component of salaries of employees would see higher hike if new CPI-IW is taken into account than the existing one.


However, experts said the private sector workers may not see a major hike in their income due to this move. “The CPI-IW tends to be higher than the CPI. The moment the share of food component in the basket comes down, it gets aligned with the CPI headline index. To my view, the private sector industrial workers, whose dearness allowance is linked to the CPI-IW, will get relatively lower benefits than their government counterpart,” Madan Sabnavis, chief economist at CARE Ratings said.

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